How can I tell which financial companies are banks?
January 31, 2014
Q: What are all these companies like Ameritrade, Barclays and Sallie Mae?
A: You might think there would be a simple answer to that, but it is surprisingly complicated. However, walking through some of the complications helps illustrate things consumers need to do to protect themselves and to choose the right financial products.
To start with a direct answer to your question, Ameritrade is a brokerage firm, providing securities trading and various investment products. Barclays is a multinational bank with more than $11 billion on deposit in the U.S., and Sallie Mae is a bank with more than $8 billion in U.S. deposits.
Where this gets complicated is that the above is not all these companies are. Ameritrade is a subsidiary of Toronto-Dominion Bank (commonly known as TD Bank), which is a multinational bank. Barclays has affiliates providing a range of other products and services, including credit cards and investment management. Sallie Mae is also much bigger than its deposit business, as it offers student loans and insurance products.
The takeaway from all this is that there is often not a straightforward answer to the question of who a financial services firm really is. In one way or another, banks, brokerage firms, mutual fund companies and insurance companies can all hold your money, but the protection you get depends greatly on the type of firm you choose.
While the number of different types of financial institutions can be baffling, you can cut to the chase by establishing whether the one you are considering is an FDIC-insured bank. You can verify this by going to the "Bank Find" section of FDIC.gov, the FDIC's web site.
Even once you establish that you are dealing with an FDIC-insured institution, you have to confirm that the product you are dealing with is covered by that insurance. For example, a bank may offer a variety of investment products that are not covered by FDIC insurance. Covered products are typically conventional deposit products, such as savings accounts, CDs, money market accounts and checking accounts.
Even the distinctions between insured and uninsured products can be subtle. For example, you may see little distinction between a money market account and a money market fund, but they are two very different entities. They are subject to different investment guidelines and have different fee structures, both of which tend to make money market funds riskier than money market accounts. Another key difference is that money market accounts are covered by FDIC insurance, whereas money market funds are not.
The bottom line, then, is that the way to cut through all the confusion is simply to insist on FDIC-insured banking products.
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